Posts Tagged ‘lender paid mortgage insurance’

New guidelines for PMI

March 5, 2018

Not that long ago, conventional loan guidelines began allowing borrowers to have a back debt to income ratio as high as 50%. The “back” ratio is the new housing payment + all other debt / monthly income. The limit was 45%, so the increase allowed  borrowers to carry a slightly higher debt threshold. This is closer to what FHA allows (up to 55%).

Private Mortgage Insurance companies observed the change, and then began making changes of their own. As of this post, all but one of the major PMI companies have changed their guidelines to reflect the following requirement. For borrowers with a debt to income ratio at 45-50%, their credit score must be over 700. For all other borrowers with a debt to income ratio under 45 %, credit scores can go as low as 620. While this change won’t impact a majority of home buyers, it is significant. Basically, if a buyer has a higher debt to income ratio and  a credit score under 700, then they must use an FHA loan to buy a home (or VA if they qualify for a VA loan). For now, conventional loans may not be an option.

Guidelines change frequently, and this could be temporary to see how conventional loans with a debt to income ratio of 45-50% perform. Hopefully that will be the case, but for now, it is in place.

Planning on using a conventional loan to purchase a home, but have a high debt to income ratio? If you are buying a home in Georgia, let’s talk sooner rather than later and make sure no changes need to be made to current plans.

LPMI Loans – Things to consider

May 7, 2015

blog-author-clayjeffreys3

Continuing a series on LPMI loans, or Lender Paid Mortgage Insurance. Last time I introduced LPMI loans. Today, I want to focus on two things to consider when deciding between using a conventional loan with monthly mortgage insurance OR using a LPMI loan.

#1. Credit – I bet you could have guessed this one! With a higher credit score, the impact to the interest rate is decreased. That said, the lower the credit score, the more the interest rate will be increased.

Remember how LPMI loans work – the borrower won’t pay a monthly PMI payment, but to do so, they are agreeing to a higher interest rate. How much higher? Let’s take a look at two examples of a $300,000 purchase price with 5% down. That gives us a loan amount of $285,000 on a 30 year fixed rate loan.

– 760+ Credit Score: the interest rate on the LPMI loan is 0.375% higher. While the mortgage payment is higher, when you factor is NOT making a monthly mortgage insurance payment, the LPMI loan is lower by about $65 per month.
– Under 720 Credit Score: this time, the net total payment is about $30 less going with the LPMI option. The drawback is the increase to the interest rate, which is 0.750% higher going with the LPMI loan.

The lower payment with the LPMI loan is great, but having the interest rate increased that month is tough to swallow (at least it is to me). The moral of the story is this – an LPMI loan may make more sense for those with excellent credit.

#2. Down Payment – the more money that is put down at the time of the purchase will lower the impact to the interest rate when using an LPMI loan. For example, let’s look at a 5% down payment versus a 15% down payment on our $300,000 purchase price.

– 5% down: it would take about 9 years for monthly PMI to fall off making the minimum monthly payment.
– 15% down: it would take a little over 4 years for monthly PMI to fall off the loan.

The borrower may have the lower monthly payment using an LPMI loan, but why go with the higher rate if the monthly PMI will fall off in only a few years. With an LPMI loan, you are stuck with a higher rate for the life of the loan. The monthly MI payment may result in a higher mortgage payment for a little while, but when the PMI falls off, you’ve got a lower monthly payment. The moral of the story is this – an LPMI loan makes more sense when making a smaller down payment.

How to decide? Tune in next time when we ask the question that helps to decide which option is best for you!

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Buying a home with little money down

October 14, 2014

blog-author-clayjeffreys3

So you are looking to buy a home with as little down as possible. You have some savings, and would like to wait to save more money, but circumstances are speeding up the time frame on when you need to buy a home. Maybe you need a bigger home for your growing family. Perhaps you are moving into a new city for work. Regardless of the circumstances, you need to buy a home now.

Unless you qualify for a VA or USDA loan, you’ll need to make a small down payment. Then what about closing costs, prepaids, etc.? Let’s take a look at the minimum down payment and ways to cover the other costs of buying a home.

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While the seller can give money toward paying a buyer’s closing costs and prepaid items (more on that in a moment), the seller cannot give any money toward the down payment. The down payment itself can be as little as a 3.5% down payment using an FHA loan, or 5% if using a conventional loan.

What if you don’t have the down payment today? One option could include borrowing money from retirement accounts. Most retirement accounts allow for you to borrow money without penalty to long as you are buying a home AND you pay the money back into the retirement account. Another option would be to get a gift from a relative/acceptable gift source for the loan program.

Using one of those options (or a combination of them) will take care of the down payment, now let’s focus on finding ways to pay the closing costs (costs associated with buying a home/getting a loan) and prepaids (insurance and property taxes on the home).

As mentioned earlier in this post, the seller can contribute money toward paying your closing costs and prepaid items. The exact amount depends on the purchase price and loan program. FHA loans allow the seller to contribute up to 6% of the purchase price toward closing costs and prepaids. Conventional loans allow 3% of the purchase price when making the minimum down payment.

Another option would be doing a no closing cost loan. Between these two options (seller paying money toward closing costs and prepaids AND doing a no closing cost loan), we can get closing cost and prepaids covered.

As you can see, there are several options available to help someone buy a home without having a lot of assets at the start of the loan program. The best option is to work to save money up prior to making the home purchase, but sometimes “life happens” and you buy a home sooner rather than later.

This is why you need to work with the professionals at Dunwoody Mortgage Services. We can use any one or combination of the options outlined in this post to help get you into your new home sooner rather than later. If you are looking to buy in Georgia, contact me today to get started. We can talk about options, go through the prequalification process, and get you ready to buy your next home!

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You don’t need 20% down to buy a home

November 6, 2013

blog-author-clayjeffreys3

I’ve often wondered why many people who talk with me about buying a home assume they need a 20% down payment. Since staring in the mortgage industry in 2007, I’ve always been able to offer a conventional loan with a 5% down payment to my clients. The only exception was a couple of months in early 2009 when the minimum down payment for conventional loans in Georgia was 10%.

From the sound of this CNN Money article published yesterday, it seems 5% down conventional loans are something new. The article says that several large banks are loosening the purse strings, offering loans with down payments that are as low as 5%.

What is frustrating about this article is that I can and have been able to offer conventional loans with as little as 5% down. Guess what? So have those same large banks. I don’t understand why media news and broadcast stories make it sound as if the only way to get a conventional loan is to come with a 20% down payment.

So we are all on the same page, here are some standard guidelines when it comes to the minimum down payment:

Conventional Loan: you need a 5% down payment and a 620+ credit score. There is PMI on the loan, but the down payment is only 5%.
Lender Paid PMI Conventional Loan: you can also qualify for this program with a 5% down payment and a 620+ credit score. There is no PMI monthly payment, but the interest rate is going to be higher than a 5% down conventional loan with monthly PMI payments.
FHA loans: you need a 3.5% down payment. Most lenders prefer a 640+ credit score though a few will still do as low as 600. The monthly PMI payments are significantly higher each month for FHA loans.

Did you notice the credit score requirements listed above? From news reports, it sounds as if you must use an FHA loan if you have an average or below average credit score. That’s not true. Lenders will now approve a 5% down conventional loan with a lower credit score than what most lenders will allow for FHA loans.

In short – don’t believe everything you see on TV or read on the internet. Contact a mortgage professional to get accurate information for the home loan process.

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Coming Soon: “HARP 2 – The Mulligan”*

November 17, 2011

  • “one of the most anticipated sequels of 2011” – says Clay Jeffreys of The Mortgage Blog
  • “it’s about time” – says a frustrated homeowner
* Note the program is still called “HARP,” but I’m referring to it as “HARP 2” for comedic relief and clarity’s sake

Unlike some movie sequels that get filmed (really, we needed a Spy Kids 4?!?), the Homes Affordable Refinance Program, known as HARP, needed a sequel. Why? Just like Rebook realized they needed to make more “office linebacker” commercials after its popularity from a past Superbowl, HARP needed some revisions to be more readily available to homeowners so more people can enjoy it!

Reebok knew what they were doing!

The original intent of HARP was to allow borrowers who were somewhat underwater refinance their mortgage into a lower rate. On paper, it sounded great. Sadly, unforeseen issues arose that didn’t allow the program to be as effective as the government hoped it would be.

What changes should one expect with the sequel “HARP 2 – The Mulligan”? There are a few major changes, but good portions of the HARP program remain the same. You can read about the program from my recent posts here (a recent “question and answer” session) and here (an overview when the program was first announced). Changes include:

  • No maximum loan to value limit. Once this part begins (to start in 2012), homeowners can be 200 or 300% underwater and still refinance to a loan without paying mortgage insurance if there is not mortgage insurance on the current loan.
  • Up to 125% loan to value ratio to be allowed with any mortgage company. This should get underway starting in December. Presently only your current mortgage servicer was allowed to go that high, which limited consumer’s ability to shop for the best interest rate.
  • Homeowners can qualify even if they are currently unemployed AND no income verification is required if the previous loan was a stated income loan as long as…
  • Homeowners have no late mortgage payments in the last 6 months, and only one late mortgage payment of 30 days in the last 7-12 months. In other words, if you are paying on time, you could refinance without income verification.
  • Private Mortgage Insurance (PMI) to be transferred to the new loan as long as it is not Lender-Paid PMI

As long as Fannie Mae or Freddie Mac own your mortgage, you got the mortgage prior to the end of February 2009, and you are current with the payments, there is a good chance you’ll qualify for new and improved HARP 2 loan program.

Some questions you may be thinking:

  • How do I know if Fannie Mae or Freddie Mac own my mortgage? Great question! You can use their online lookup tools. Use this link for Fannie Mae. Try this link for Freddie Mac.
  • How do I get started? If the property (primary residence, vacation home or investment property) is in the state of Georgia, I can help you get started. Contact me and we will take it from there.

Remember HARP 2 is not here yet, but it is coming soon. Refinance applications for the updated program can start in December, but some parts may not be available until 2012. Stay tuned to The Mortgage Blog for updates on all aspects HARP 2 availability in the coming weeks!

are the rumors true?

November 9, 2010

The past several years have brought so many changes to the mortgage and real estate industries, it is hard to keep track of everything. With that in mind, it is natural for rumors to get started.. “I heard one of the changes allows…” and you fill in the rest of the sentence.

What I would like to do with this post is discuss three of those “rumors” to see what is real and what is not.

#1. Conventional and FHA loan programs allow for hardship exceptions for individuals out of work in regards to  income requirements. This one is not real. With the ever tightening guidelines for both conventional and (especially) FHA loans,  income must be documented. The income could come from a variety of sources (job, alimony, child support, disability, commission, bonuses, social security, etc.), but it must exist in some form. Hardship exceptions are not allowed.

#2. I can make less than a 20% down payment and not pay mortgage insurance on a monthly basis. This one is true! Conventional loans have a program that allows the lender to make a one time fee payment to waive the monthly mortgage insurance. The catch? The fee is paid “by the lender” when you agree to take a higher interest rate. In short, you are still paying for it through a higher monthly mortgage payment. Bottom line, in most cases it is cheaper to go the lender paid route instead of the monthly route, but the loan still has an increased monthly payment because of the higher rate.

The better alternative – go with an FHA 15 year fixed mortgage. If a borrower puts 10% down OR has 10% equity in a refinance using a 15 year fixed FHA mortgage, there will be no monthly mortgage insurance payment. The catch? There isn’t one! There is no rate adjustment of any kind. The borrower will still be required to pay the 1% up front mortgage insurance premium fee (rolled into the loan amount), but that fee is required on all FHA loans regardless of the down payment amount.

#3. A no doc FHA loan is coming. This one is unknown at this time. These rumors began when some politicians asked the government to allow FHA to issue no doc loans so home owners can take advantage of the historically low interest rates. The catch? If this ever comes to fruition, it will be for refinances only. There would be no appraisal, no income documentation, no assets verified. As currently proposed, the home owner would only need to have owned the home for at least one year and NEVER missed a mortgage payment.

Why would the government consider doing this? Well, there isn’t a ton of risk involved with the loan. I know that sounds crazy, but hear me out. These loans would have an up front mortgage insurance payment, and probably a monthly requirement too. Also, the current home owner would have made at least 12 on time mortgage payments. Theoretically, if the home owner is already making their mortgage payments, wouldn’t they be able to consistently make a smaller monthly payment? Also, the hope is the monthly savings would be put back into the economy through consumer spending – which helps the economy. That is the real motivation… helping the economy.

Again, this is NOT a program that is available today. It may NEVER be available. I’m only writing about it today because some members of Congress have mentioned it, and I’ve received some emails from friends/clients asking about its validity.

Heard any other bits of news on mortgages that you are not sure if it is real or not? Feel free to contact me, and we’ll go through your rumor to find the truth!